Tuesday, March 3, 2015

Blame unions for failed businesses

Editor’s Note: Views expressed in guest columns and letters to the editor reflect the views of the author, not the views of The State News.

Throughout the years, unions have fought for the rights and benefits of the average working American.

We are lucky to live in a society that cares about things such as working conditions, reasonable treatment and wages. Unions have helped to prevent the exploitation of workers by corrupt managers and corporations. Arguably, this might be the most important contribution unions have provided us.

However, many unions have become victims of their own success. Many times, they are no better than the corporations they seek to protect us from, if not worse. Perhaps they have become drunk with their own power.

Let’s talk Twinkies here. This is some serious stuff.

Yes, one of America’s most beloved snack food companies declared bankruptcy and is being threatened with liquidation. Why? The answer is union inflexibility.

Hostess, a company that admittedly had been doing poorly for years, suggested the workers accept some cuts in benefits in order to stay afloat.

One of Hostess’s many unions — the Bakery, Confectionery, Tobacco Workers and Grain Millers’ International Union — laughed at the idea.

When the union voted to reject a cut in pay, Hostess had no choice but to close its doors and put more than 18,000 people on the government dole.

This is the problem associated with unions today. Any change in policy implemented by a unionized company must be authorized by the union first, and it is not surprising that many unions are less than reasonable. Unionized companies that are inflexible cannot remain competitive, and the result is often disaster.

In fact, I probably am being too nice. Just ask the ex-employees of U.S. Steel, Firestone Tires, Eastern Airlines, General Motors or the entire citizenry of Flint. Now the proud unionized employees of Hostess Bakeries are joining this elite list, and it appears the employees of Awrey Bakeries are not far behind.

It is true business is complicated and there might be a whole “Hostess” of reasons why businesses fail, but here is why unions must shoulder a large share of the blame: they prevent wages from adjusting.

In order for markets to work, wages and prices must be free to adjust so that supply and demand can be brought into balance.

Unions prevent wages from adjusting to decreases in demand or increases in the supply of competition. The result is entire businesses fail.

Let me explain. Assume the cost of your union labor is $15 per hour. Also assume that your sales are $25 per hour. This yields a profit of $10 per hour. Things are looking good for the capitalist pigs.

But assume that competition from upstarts such as Mrs. Fields, Dolly Madison or Orville Redenbacher cut into sales. Assume sales fall as a result of this new competition and are no longer $25 per hour. Assume sales now only are $13 per hour.

If sales now are $13 per hour and union labor costs are inflexibly stuck at $15 per hour, we now are losing $2 every hour we remain open. Herein is revealed the problem. If sales fall, if margins decline, if any change turns a profit into a loss, the end is near.

No one can continue to lose money. Failure to profit is not an option for you, or for anyone.
The result is the company must shut down. It must close its doors, and all those workers who were employed yesterday are unemployed today.

There was an alternative, however, and a very good one. What if the workers had accepted a pay cut? What if labor costs could be cut to $11 per hour?

Now a sales level of $13 per hour, with a wage rate of $11 per hour, yields us a profit of $2 per hour. The company remains in business, and the workers remain employed. Is this not a better result?

Absolutely. A job at $11 per hour is better than no job at all.

This is how wages and prices must work to maintain balance in an ever-changing economic world.
It is essential both wages and prices be allowed to adjust. When wages and prices can adjust to changing conditions, business and labor can continue producing. When wages and prices can’t adjust, the result is a closure and a disaster for everyone.

The sad truth is that unions are far too often entirely inflexible. The result is industry after industry in America has closed its doors.

But how would the wages of workers ever advance if unions are not there to force the issue? Remember that wages can adjust upward just as easily as they do downward.

More importantly, the reason we all go to work each day is to move our own wealth and wages upward, not downward. If there is economic growth, upward is the natural direction.

Alex Brooks is a guest columnist at The State News and an economics senior. Reach him atbrook194@msu.edu.